The Pakistan Credit Rating Agency Limited
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Faiqa Qamar

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PACRA Maintains Entity Ratings of Hi-Tech Feeds (Pvt.) Limited, Assigns "Rating Watch"

Rating Type Entity
Action Maintain Maintain
Long Term BBB- BBB-
Short Term A3 A3
Outlook Developing Stable
Rating Watch Yes -

The global feed industry can be valued at around ~$460bln, with poultry (~$166bln) constituting ~36% of the total industry. Pakistan has an installed production capacity of ~ 8mln MT of poultry feed annually with a total of ~150 registered feed mills and ~200 unregistered feed mills catering to it. The industry generates an estimated annual revenue of ~ PKR 100bln from local sales to poultry farms. Lately, due to Covid-19 outbreak, restaurants, marriage halls and other public places have been closed. This, along with no exports of poultry products, have led to supply glut in local market. Prices of poultry products have posted a dip despite being an essential food item due to lower demand with many poultry farms becoming non-operational. Subsequently, sale of feed and recovery from farms is expected to remain under pressure. Although feed producers have sufficient inventory, lower sales and liquidity crunch are expected to significantly impact industry players. Recent SBP measures will provide some respite in the short-time. However, prolonged closure of key revenue generating channels will affect sales in the entire poultry chain.

The ratings reflect Hi-Tech Feeds (Pvt.) Limited association is with an established poultry group, Hi-Tech Group. The Company is part of Group’s integrated poultry chain – oil/meal, feed and poultry – and enjoys a moderate market share with good Feed Conversion Ratio. The Company remains exposed to inherent risks in the feed industry emanating from raw material price changes and lately low demand due to COVID-19 outbreak. Although the Company enjoyed good margins and profitability in 9MFY20, sales have slowed down considerably in the 4QFY20 subsequent to lockdown leading to lower capacity utilization and off take. This trend is expected to continue until lockdown eases and demand centers (restaurants, banquet halls etc.) reopen. The Company piled up raw material inventory, procured on cash, in anticipation of higher prices. This led to stretched working capital requirement, with receivable days also high, met through short-term borrowings. The Company had a moderately leveraged capital structure, while coverages remain stretched. The ratings have been put on "Rating Watch" as COVID-19 outbreak and lockdown has adversely impacted industry prospects and created uncertainty. PACRA will monitor the prevailing situation and update the ratings accordingly.
The ratings are dependent on the management's ability to sustain its operations and improve capacity utilization. Maintaining strict working capital discipline through prudent inventory management and rationalizing significantly high receivable days and ensuing borrowings remain critical. Any significant deterioration in margins and/or prolonged low sales cycle will have negative impact on the ratings. Support from sponsors and other group entities is important.

About the Entity
Hi-Tech Feeds (Pvt.) Limited is a prominent venture of Hi-Tech Group, which has diversified vertically across the poultry supply chain. The Company was incorporated in 1985 and is primarily engaged in manufacturing and selling poultry feed variants for birds of different types and age groups. The Company has two feed manufacturing facilities situated in Lahore and Sahiwal, with a production capacity of 100 MT per hour and 90 MT per hour, respectively. The quality of feed produced is ranked as one of the best among competitors.

Hi-Tech Feeds is equally (25%) owned by Dr. Muhammad Arshad, Dr. Abdul Qayyum, Dr. Muhammad Asim Khan and Dr. Anwar Mahmood Randhawa. All four sponsors (also Directors on the board) hold a veterinary degree and are very well equipped with relevant industry knowledge. Dr. Muhammad Arshad laid the foundation of the Group and leads as the CEO of the Company. He is assisted by a team of experienced professionals.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.